Just 2 questions that have occured to me.
( i’ll write all positions numerically 1 lot = 100,000 )
1)Assuming i hold a position of $100,000 on the gbp/jpy with $50,000 balance in my account. does that mean i can weather a 50% drop in gbp/jpy?
At first that’s what i though. but after some calculations, i dont think thats the case.
When the interest rate differentials stand at say 4.5% ($4500 /lot/year) , and the current price of gby/jpy is at 150.0 , and the rollover is calculated everyday, does that mean that when gby/jpy drops to 140, my interest will drop lower than $4500?
1)Assuming i hold a position of $100,000 on the gbp/jpy with $50,000 balance in my account. does that mean i can weather a 50% drop in gbp/jpy?
At first that’s what i though. but after some calculations, i dont think thats the case.
If by 50% drop you mean the price falls from the current price of 150.00 to 75.00, then the answer is maybe, depending on your leverage. That’s a 7500 pip drop, and at $10 per pip (1 standard lot) that comes to a loss of $75,000. If your leverage is low you might not survive it, but at higher leverages you should be fine.
I hope this is theoretical, because I have no clue why you would want to do something like this.
When the interest rate differentials stand at say 4.5% ($4500 /lot/year) , and the current price of gby/jpy is at 150.0 , and the rollover is calculated everyday, does that mean that when gby/jpy drops to 140, my interest will drop lower than $4500?
what im essentially asking is, lets say i open a standard lot. and i have 100,000 worth of balance. is it possible to get a margin call? cause it wouldnt make much sense, if u open a lot thats worth 100,000 and have 100,000 in cash, why would you still get a margin call?
Scenario : 7/2007 gby/jpy 250.00 -> 11/2008 gby/jpy 140.0
loss in pips : 11,000. i pip $10 in a standard lot, therefore loss = 110,000 .
So even if you have the same amount of money in your balance as your position, you might still get a m.c
I think the problem is that you’re confused about what things like usable margin, equity, etc actually are. Opening lots does not add equity to your account. This is a pretty complicated subject, so I suggest you go to the Babypips’s school and read the section on margin.
1 standard lot = 100 000 units ( a unit is a varying dollar amount
dependant upon the exchange rate between dollar crosses)
Taking this question apart
1 You have an account balance opf $50 000, you will then need to
know the leverage on your account to work out margin. For example
100:1
2 On GBP/JPY the trade value of 100 000 units x (GBP/USD exchange rate ie $1.55) = $155 000.
To find out our margin or deposit required we need to divide the trade value ($155 000) by 100 (100:1 leverage) = $1 550
3 Available margin = account balance - used margin
$49450 = $50 000 - $1550
4 At $10/pip (standard lot pip value approx.) the value of the GBP/JPY
can drop by 49 450/10 = 4 945 pips before our account is at 0. (Actually it
will never reach this because we will get our deposit of $1 550 back)
Interest rate differential is not worked out solely on a straight forward
calculation. The fact that we are selling GBP & buying JPY (or vice versa)
(this is the usual way a trade works out)
The calculation is value of trade in GBP x GBP interest rate (a) as a negative amount, value of JPY x JPY interest rate (b) as a positive amount so
a - b /365 = either positive or negative carry trade/day.
To make the calculation easier your broker will give a list of these
values.